What Ralph Lauren earnings and sales, EPS slide can tell us about the luxury markets

Before US markets opened today, well-heeled US fashion label Ralph Lauren reported its Q4 FY 2024 earnings.

With earnings season winding down to a close now, many who aren’t active Ralph Lauren or fashion investors may not have tuned in.

But the company’s earnings tell volumes – not just about Ralph Lauren, but about the US economy as a whole.

What does Ralph Lauren earnings say about the economy and markets?

The interest in ‘nice-to-have’ luxury items like designer fashion or accessories, like Ralph Lauren’s for example, is an important indicator of how economies are (or aren’t) shopping.

But why are we looking at Ralph Lauren, specifically? Why not a different luxury brand?

Much of the world’s bellwether luxury brands have their strongest ties to Europe, not America – think LVMH, Hermes and Kerig. And it’s the US economy that’s arguably in trouble now.

In contrast, the European Central Bank seems to be winning its fight with inflation, with CPI creeping nearer and nearer to the hallowed 2% and interest rate cuts expected as soon as June.

Ralph Lauren’s ties to economic sentiment

Toward the beginning of the year, Ralph Lauren reported positive Q3 results for its FY 2024. It had reported revenues just shy of $2 billion, up 5.6% year-on-year and a good 3% higher than markets had expected them to be.

At the time, America was still expecting up to six or even seven interest rate cuts during 2024, and seemed to have just achieved the so-called ‘soft landing’ the Fed had been aiming for, but analysts had warned was unlikely.

But that was then. Now, economists are warning of a potential recession that could hit the United States anywhere between end 2024 and beginning of 2025. And earnings in this kind of environment could look decidedly different.

The earnings today

Today’s quarterly results showed that revenue climbed 2.0% year-over-year to $1.60 billion, while per-share earnings also improved from 48 cents to $1.38 per share.

Ralph Lauren also noted an annualized growth of 6.0% in its direct-to-consumer comparable store sales in its fourth quarter that it ended with $902 million worth of inventory – down 16% versus last year.

What the results mean

Ralph Lauren has a history of surpassing expectations during earnings season. This quarter, analysts had low expectations. Flat revenues, with around just a 1% increase year-on-year for the quarter, and declining earnings per share (EPS) of around $1.60 or less.

The fact that EPS and comparable store sales underdelivered, although total revenues didn’t, is a fairly grim earnings report for a company known to exceed expectations. It suggests a tightening of belts in the average American consumer that the luxury sector is not likely to benefit from in recent months.

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